The Future of Finance: All About Embedded, Open, and Decentralized Finance
Based on remarks originally shared July 28, 2022 at Future Finance Manila
Let’s start by dispelling one myth: digital is not the future of finance. Digital finance is NOW! The Philippines is on track to have over 50% of retail payments digital by early next year. Six digital-only banking licenses have been granted by the Bangko Sentral ng Pilipinas (BSP) with three now in operation. Digital finance has arrived in the Philippines! There is still a long way to go, and we will continue to hear stories about the digital transformation of banking and finance for quite some time. Digitizing finance has made fintech 1.0 possible.
For us at UBX, the future of finance can be described in three ways:
- Embedded (FinTech 2.0)
- Open (let’s call it FinTech 2.5!)
- Decentralized (Fintech 3.0)
Source: Adapted from Matt Harris, Bain Capital Ventures and Spartan Group
Let us pick these apart one at a time as these aspects of the future of finance correspond to the evolution and story of UBX itself.
Embedded Finance
While less than 50% of Filipinos have a formal bank account, all Filipinos with a smart phone are using digital platforms like Facebook, Lazada, Food Panda, Grab and more. Digital platforms have acquired customers at scale and at a rate far surpassing that of traditional financial institutions. More and more, these platforms are facilitating the activities and experiences that truly matter to individuals and businesses.
These platforms and the ecosystems they serve will be expanded and monetized through the embedding of financial services. More and more, people will not go to the bank (or even the banking app on their phone!) but instead access financial services almost invisibly on these digital platforms. A good example of this at UBX is how MSME lending is embedded in the City of Pasig TAPAT site leveraging UBX’s lending APIs. Another example is UBX’s new Splix feature riding on UBX’s payment APIs where instalment options will be embedded into traffic violation payments where violators want to pay their fines but cannot afford the entire amount up front. In this case LGUs want to enforce regulations but also assist their citizens by baking flexibility into the process.
Today’s digital finance, enables tomorrow’s embedded finance.
Open Finance
Open finance is predicated on a simple, single core principle: data held by banks and financial service providers on their customers belongs to their customers — not the financial service providers. Customer controlled data portability allows innovators to build highly personalized experiences while accelerating the pace of innovation.
At UBX today, we have the services of over 200 regulated financial institutions on our platform. We are the de facto leading open finance platform in the Philippines today! This market driven pull, much like with Mint and Plaid in the United States, will be complimented by a regulation driven push by the BSP with their Open Finance Framework, much like CMA9 in the UK and PSD2 in the EU. A good example of where open finance will concretely bring benefits through our platform is lending based on payments data where the lender, payment providers and the merchant’s bank are all different. UBX is enabling organizations like KMBI to do exactly this with their members.
Decentralized Finance
The recent crash of crypto and decentralized finance is playing out much like the dot com bubble of the late 1990’s. And just like that bubble, what will emerge is a more mature, safer and scalable ecosystem. The technology driving decentralized finance, opens and democratizes finance. This ultimately represents an unstoppable force.
At UBX we have a deep legacy with crypto and blockchain and leverage both under the covers in powering our UBX i2i applications. Our latest innovation in the decentralized space is our NFT platform powering Artifract.io. UBX is extending its vision beyond Open Finance to an Open Economy. Our NFT platform-as-a-service facilitates the asserting and exercising of ownership rights over digital assets. For Artifract, the scarcity or uniqueness of original pieces of Filipino art is brought into the digital realm. The provenance of each NFT is always available, so collectors can ensure authenticity prior to buying or bidding. Through fractionalization, we are not just democratizing access to this unique asset class, we are providing the means to digitize and distribute ownership rights across any asset class! Welcome to the future of finance. Welcome to the future of the economy.
What Does It Mean?
So the future of finance is embedded, open and decentralized. But what does this all really mean? It means lowering costs to distribute financial services, removing barriers to access, and making it easier to innovate. The future of finance means opportunity and access for all!
